Analog Devices Reports Third Quarter 2016 Results

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August 17, 2016
Analog Devices Reports Third Quarter 2016 Results
Revenue increases to $870 million, Free Cash Flow margin in the quarter increases over 600 basis points compared
to the prior year
NORWOOD, Mass.--(BUSINESS WIRE)-- Analog Devices, Inc. (NASDAQ: ADI), today announced financial results for its third
quarter of fiscal year 2016, which ended July 30, 2016.
"We executed well in the third quarter and delivered revenue and diluted earnings per share results that exceeded our
revised guidance," said Vincent Roche, President and CEO. "During the quarter, we also announced the proposed
acquisition of Linear Technology Corporation, a combination that will create a trusted analog industry leader, capable of
delivering tremendous benefits to our customers, our employees, and our shareholders."
"Looking ahead to the October quarter, we are planning for revenue to increase sequentially, and be in the range of $910
million to $970 million. By end market, we expect the industrial, automotive, and communications infrastructure markets, in
the aggregate, to remain largely stable to their third quarter levels, and to increase in the low-to-mid-single digits compared
to the prior year. In the consumer market, strong customer demand in the portables sector leads us to plan for continued
sequential revenue growth in this market."
ADI also announced that the Board of Directors has declared a cash dividend of $0.42 per outstanding share of common
stock. The dividend will be paid on September 7, 2016 to all shareholders of record at the close of business on August 26,
2016.
Results for the Third Quarter of Fiscal Year 2016
Š
Revenue totaled $870 million, up 12% sequentially, and up 1% year-over-year
Š
Revenue in ADI's B2B markets of industrial, automotive, and communications infrastructure totaled $683 million, down
2% sequentially, and up 4% year-over-year
Š
GAAP gross margin of 65.8% of revenue; Non-GAAP gross margin of 66.0% of revenue
Š
GAAP operating margin of 30.9% of revenue; Non-GAAP operating margin of 34.1% of revenue
Š
GAAP diluted EPS of $0.74; Non-GAAP diluted EPS of $0.82
Please refer to the schedules provided for a summary of revenue and earnings, selected balance sheet information, and
the cash flow statement for the third quarter of fiscal year 2016, as well as the immediately prior and year-ago quarters.
Additional information on revenue by end market is provided on Schedule D.
Outlook for the Fourth Quarter of Fiscal Year 2016
The following statements are based on current expectations, and as indicated, are presented on a GAAP and non-GAAP
basis. These statements are forward-looking and actual results may differ materially, as a result of, among other things, the
important factors discussed at the end of this release. These statements supersede all prior statements regarding our
business outlook set forth in prior ADI news releases, and ADI disclaims any obligation to update these forward-looking
statements.
GAAP
Revenue
Gross Margin
Operating Expenses
Interest & Other Expense
Tax Rate
$910 million to $970
million
approx. 65.2%
Slightly up
sequentially
$20.0 million
approx. 12.5%
Non-GAAP
Adjustments
$2.5 million (1)
$17.5 million (1)
-
Non-GAAP
$910 million to $970
million
approx. 65.5%
Slightly up
sequentially
$20.0 million
approx. 12.0%
Earnings per Share
$0.78 to $0.88
$0.06 (2)
$0.84 to $0.94
1. Reflects estimated adjustments for amortization of purchased intangible assets and depreciation of step up value on
purchased fixed assets.
2. Represents estimated impact of expenses associated with non-GAAP adjustments on a per share basis.
Conference Call Scheduled for Today, Wednesday, August 17, 2016 at 10:00 am ET
ADI will host a conference call to discuss third quarter fiscal 2016 results and short-term outlook today, beginning at 10:00
am ET. Investors may join via webcast, accessible at investor.analog.com, or by telephone (call 706-634-7193 ten minutes
before the call begins and provide the password "ADI").
A replay will be available two hours after the completion of the call. The replay may be accessed for up to two weeks by
dialing 855-859-2056 (replay only) and providing the conference ID: 18291939, or by visiting investor.analog.com.
Non-GAAP Financial Information
This release includes non-GAAP financial measures that are not in accordance with, nor an alternative to, generally
accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these
non-GAAP measures are not based on any comprehensive set of accounting rules or principles.
Schedule E of this press release provides the reconciliation of the Company's historical non-GAAP revenue and earnings
measures to its GAAP measures.
Management uses non-GAAP measures to evaluate the Company's operating performance from continuing operations
against past periods and to budget and allocate resources in future periods. These non-GAAP measures also assist
management in evaluating the Company's core business and trends across different reporting periods on a consistent
basis. Management also believes that the presentation of these non-GAAP items is useful to investors because it provides
investors with the operating results that management uses to manage the Company and enables investors and analysts to
evaluate the Company's core business.
The following items are excluded from our non-GAAP gross margin, non-GAAP operating expenses, non-GAAP
operating income, non-GAAP operating margin, and non-GAAP diluted earnings per share:
Acquisition-Related Expenses: Expenses incurred as a result of prior period acquisitions primarily include expense
associated with the fair value adjustments to property, plant and equipment and amortization of acquisition related
intangibles, which include acquired intangibles such as purchased technology and customer relationships. We excluded
these costs from our non-GAAP measures because they relate to a specific transaction and are not reflective of our
ongoing financial performance.
The following items are excluded from our non-GAAP operating expenses, non-GAAP operating income, nonGAAP operating margin, and non-GAAP diluted earnings per share:
Acquisition-Related Transaction Costs: Costs incurred as a result of the Hittite acquisition and the proposed Linear
Technology acquisition, including legal, accounting and other professional fees directly related to these acquisitions. We
excluded these costs from our non-GAAP measures because they relate to specific transactions and are not reflective of
our ongoing financial performance.
Restructuring-Related Expenses: These expenses are incurred in connection with facility closures, consolidation of
manufacturing facilities, severance, and other cost reduction efforts. We excluded these expenses from our non-GAAP
measures because apart from ongoing expense savings as a result of such items, these expenses and the related tax
effects have no direct correlation to the operation of our business in the future.
The following items are excluded from our non-GAAP diluted earnings per share:
Tax-Related Items: Tax adjustments associated with the non-GAAP items discussed above. We excluded these tax-related
items from our non-GAAP measures because they are not associated with the tax expense on our current operating results.
Analog Devices believes that these non-GAAP measures have material limitations in that they do not reflect all of the
amounts associated with our results of operations as determined in accordance with GAAP and that these measures should
only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. In addition, our
non-GAAP measures may not be comparable to the non-GAAP measures reported by other companies. The Company's
use of non-GAAP measures, and the underlying methodology when excluding certain items, is not necessarily an indication
of the results of operations that may be expected in the future, or that the Company will not, in fact, record such items in
future periods.
Investors should consider our non-GAAP financial measures in conjunction with the corresponding GAAP measures.
Free cash flow is defined as cash provided by (used in) operating activities less capital expenditures. Schedule F of this
press release provides a calculation of supplemental free cash flow measures.
About Analog Devices
Analog Devices designs and manufactures semiconductor products and solutions. We enable our customers to interpret the
world around us by intelligently bridging the physical and digital with unmatched technologies that sense, measure and
connect. Visit http://www.analog.com.
Forward Looking Statements
This press release contains forward-looking statements, which address a variety of subjects including, for example, our
statements regarding expected revenue, earnings per share, gross margin, operating expenses, interest and other
expense, tax rate, and other financial results, expected operating leverage, production and inventory levels, expected
market trends, and expected customer demand and order rates for our products, the proposed acquisition of Linear
Technology Corporation ("Linear Technology"), the expected benefits and synergies of the transaction, expected growth
rates of the combined companies, Analog Devices' expected product offerings, product development, marketing position
and technical advances resulting from the transaction. Statements that are not historical facts, including statements about
our beliefs, plans and expectations, are forward-looking statements. Such statements are based on our current
expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially
from those described in the forward-looking statements. The following important factors and uncertainties, among others,
could cause actual results to differ materially from those described in these forward-looking statements: any faltering in
global economic conditions or the stability of credit and financial markets, erosion of consumer confidence and declines in
customer spending, unavailability of raw materials, services, supplies or manufacturing capacity, changes in geographic,
product or customer mix, the ability to satisfy the conditions to closing of the proposed transaction with Linear Technology,
on the expected timing or at all; the ability to obtain required regulatory approvals for the proposed transaction, on the
expected timing or at all, including the potential for regulatory authorities to require divestitures in connection with the
proposed transaction; the occurrence of any event that could give rise to the termination of the merger agreement with
Linear Technology; the risk of stockholder litigation relating to the proposed transaction, including resulting expense or
delay; higher than expected or unexpected costs associated with or relating to the transaction; the risk that expected
benefits, synergies and growth prospects of the transaction may not be achieved in a timely manner, or at all; the risk that
Linear Technology's business may not be successfully integrated with Analog Devices' following the closing; the risk that
Analog Devices and Linear Technology will be unable to retain and hire key personnel; and the risk that disruption from the
transaction may adversely affect Linear Technology's or Analog Devices' business and relationships with their customers,
suppliers or employees. For additional information about factors that could cause actual results to differ materially from
those described in the forward-looking statements, please refer to both Analog Devices' and Linear Technology's filings with
the Securities and Exchange Commission ("SEC"), including the risk factors contained in each of Analog Devices' and
Linear Technology's most recent Quarterly Reports on Form 10-Q and Annual Report on Form 10-K. Forward-looking
statements represent management's current expectations and are inherently uncertain. Except as required by law, we do
not undertake any obligation to update forward-looking statements made by us to reflect subsequent events or
circumstances.
Important Additional Information Will Be Filed With The SEC
In connection with the proposed transaction, Analog Devices and Linear Technology intend to file relevant information with
the SEC, including a registration statement of Analog Devices on Form S-4 (the "registration statement") that will include a
prospectus of Analog Devices and a proxy statement of Linear Technology (the "proxy statement/prospectus"). INVESTORS
AND SECURITY HOLDERS OF LINEAR TECHNOLOGY ARE URGED TO CAREFULLY READ THE ENTIRE REGISTRATION
STATEMENT AND PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC
WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT ANALOG
DEVICES, LINEAR TECHNOLOGY AND THE PROPOSED TRANSACTION. A definitive proxy statement/prospectus will be
sent to Linear Technology's shareholders. The registration statement, proxy statement/prospectus and other documents
filed by Analog Devices with the SEC may be obtained free of charge at Analog Devices' website at www.analog.com or at
the SEC's website at www.sec.gov. These documents may also be obtained free of charge from Analog Devices by
requesting them by mail at Analog Devices, Inc., One Technology Way, P.O. Box 9106, Norwood, MA 02062-9106,
Attention: Investor Relations, or by telephone at (781) 461-3282. The documents filed by Linear Technology with the SEC
may be obtained free of charge at Linear Technology's website at www.linear.com or at the SEC's website at www.sec.gov.
These documents may also be obtained free of charge from Linear Technology by requesting them by mail at Linear
Technology Corporation, 1630 McCarthy Blvd., Milpitas, CA, 95035-7417, Attention: Investor Relations, or by telephone at
(408) 432-2407.
Participants in the Solicitation
Linear Technology, Analog Devices and certain of their directors, executive officers and employees may be deemed
participants in the solicitation of proxies from Linear Technology shareholders in connection with the proposed transaction.
Information regarding the persons who may be deemed to be participants in the solicitation of Linear Technology
shareholders in connection with the proposed transaction, including a description of their direct or indirect interests, by
security holdings or otherwise, will be set forth in the proxy statement/prospectus when it is filed with the SEC. Information
about the directors and executive officers of Analog Devices and their ownership of Analog Devices' common stock is set
forth in the definitive proxy statement for the Analog Devices' 2016 annual meeting of shareholders, as previously filed with
the SEC on January 28, 2016. Information about the directors and executive officers of Linear Technology and their
ownership of Linear Technology common stock is set forth in the definitive proxy statement for Linear Technology's 2015
annual meeting of shareholders, as previously filed with the SEC on September 17, 2015. Free copies of these documents
may be obtained as described in the paragraphs above.
Non-Solicitation
This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to
buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall
be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as
amended.
Analog Devices and the Analog Devices logo are registered trademarks or trademarks of Analog Devices, Inc. All other
trademarks mentioned in this document are the property of their respective owners.
Analog Devices, Third Quarter, Fiscal 2016
Schedule A
Revenue and Earnings Summary (Unaudited)
(In thousands, except per-share amounts)
Revenue
Year-to-year change
Quarter-to-quarter change
Cost of sales (1)
Gross margin
Gross margin percentage
Year-to-year change (basis points)
Quarter-to-quarter change (basis points)
Operating expenses:
R&D (1)
Selling, marketing and G&A (1)
Amortization of intangibles
Special charges
Total operating expenses
Total operating expenses percentage
Year-to-year change (basis points)
Quarter-to-quarter change (basis points)
Operating income
Operating income percentage
Year-to-year change (basis points)
Quarter-to-quarter change (basis points)
Other expense
Income before income tax
Provision for income taxes
Tax rate percentage
Three Months Ended
3Q 16
2Q 16
3Q 15
July 30,
April 30,
Aug 1,
2016
2016
2015
$869,591 $778,766
$863,365
1%
(5)%
19%
12%
1%
5%
297,301
267,863
294,328
572,290
510,903
569,037
65.8%
65.6%
65.9%
(10)
(80)
50
20
360
(50)
163,227
122,909
17,447
—
303,583
34.9%
(30)
(410)
268,707
30.9%
20
430
12,307
256,400
25,970
10.1%
160,235
112,186
17,419
13,684
303,524
39.0%
300
230
207,379
26.6%
(370)
130
12,469
194,910
24,337
12.5%
160,784
120,030
22,954
—
303,768
35.2%
(240)
(80)
265,269
30.7%
290
40
5,791
259,478
43,000
16.6%
Net income
$230,430
$170,573
$216,478
307,135
310,558
308,790
312,250
313,877
318,187
Shares used for EPS - basic
Shares used for EPS - diluted
Earnings per share - basic
Earnings per share - diluted
$
$
0.75
0.74
$
$
0.55
0.55
$
$
0.69
0.68
Dividends paid per share
$
0.42
$
0.42
$
0.40
(1) Includes stock-based compensation expense as follows:
Cost of sales
$
R&D
$
Selling, marketing and G&A
$
1,844
6,682
8,093
$
$
$
1,986
6,646
7,327
$
$
$
2,196
6,839
7,329
Analog Devices, Third Quarter, Fiscal 2016
Schedule B
Selected Balance Sheet Information (Unaudited)
(In thousands)
Cash & short-term investments
Accounts receivable, net
Inventories (1)
Other current assets
Total current assets
PP&E, net
Investments
Goodwill
Intangible assets, net
Other
Total assets
3Q 16
2Q 16
3Q 15
July 30,
April 30,
Aug 1,
2016
2016
2015
$3,803,434 $3,754,081 $3,099,961
452,944
398,979
451,511
392,303
399,459
424,475
79,207
75,355
173,945
4,727,888 4,627,874 4,149,892
629,094
626,162
631,269
54,077
50,680
40,324
1,639,033 1,639,165 1,640,381
529,035
548,374
601,882
105,926
78,037
67,313
$7,685,053 $7,570,292 $7,131,061
Deferred income on shipments to distributors, net $ 327,444 $ 317,290 $ 307,265
Other current liabilities
351,249
367,310
375,753
Debt, current
—
—
374,371
Long-term debt
1,731,758 1,731,336
495,189
Non-current liabilities
291,269
280,655
513,322
Shareholders' equity
4,983,333 4,873,701 5,065,161
Total liabilities & equity
$7,685,053 $7,570,292 $7,131,061
(1) Includes $2,554, $2,719, and $2,935 related to stock-based compensation in 3Q16, 2Q16, and 3Q15, respectively.
Analog Devices, Third Quarter, Fiscal 2016
Schedule C
Cash Flow Statement (Unaudited)
(In thousands)
Three Months Ended
3Q 16
2Q 16
3Q 15
Cash flows from operating activities:
Net Income
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation
Amortization of intangibles
Stock-based compensation expense
Other non-cash activity
Excess tax benefit - stock options
Deferred income taxes
Changes in operating assets and liabilities
Total adjustments
Net cash provided by operating activities
Percent of revenue
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
April 30,
2016
$ 230,430
$ 170,573
33,732
18,916
16,619
1,127
(2,982)
12,250
(56,089)
23,573
254,003
29.2%
Cash flows from investing activities:
Purchases of short-term available-for-sale investments
Maturities of short-term available-for-sale investments
Sales of short-term available-for-sale investments
Additions to property, plant and equipment
Payments for acquisitions, net of cash acquired
Change in other assets
Net cash used for investing activities
Cash flows from financing activities:
Payments for deferred financing fees
Dividend payments to shareholders
Repurchase of common stock
Proceeds from employee stock plans
Excess tax benefit - stock options
Contingent consideration payment
Change in other financing activities
Net cash used for financing activities
Effect of exchange rate changes on cash
July 30,
2016
(2,284,166)
2,078,716
139,805
(37,528)
—
(8,591)
(111,764)
(22,208)
(128,954)
(23,022)
16,633
2,982
—
(2,093)
(156,662)
(1,569)
33,483
18,440
15,959
500
(3,212)
539
83,921
149,630
320,203
41.1%
Aug 1,
2015
$ 216,478
33,650
23,898
16,364
3,827
(6,373)
(17,168)
(73,537)
(19,339)
197,139
22.8%
(1,939,750) (1,403,600)
1,522,688
1,083,474
102,316
215,998
(25,517)
(35,164)
(2,203)
(6,947)
(2,746)
(1,180)
(345,212)
(147,419)
—
(129,925)
(213,650)
16,480
3,212
—
(2,786)
(326,669)
898
—
(125,511)
(31,340)
19,988
6,373
(1,767)
4,327
(127,930)
(509)
(15,992)
(350,780)
1,119,662
1,470,442
$1,103,670 $1,119,662
(78,719)
636,216
$ 557,497
Analog Devices, Third Quarter, Fiscal 2016
Schedule D
Revenue Trends by End Market (Unaudited)
(In thousands)
The categorization of revenue by end market is determined using a variety of data points including the technical
characteristics of the product, the "sold to" customer information, the "ship to" customer information and the end customer
product or application into which our product will be incorporated. As data systems for capturing and tracking this data
evolve and improve, the categorization of products by end market can vary over time. When this occurs we reclassify
revenue by end market for prior periods. Such reclassifications typically do not materially change the sizing of, or the
underlying trends of results within, each end market.
Three Months Ended
July 30,
April 30,
Aug 1,
2016
2016
2015
Revenue %*
Q/Q % Y/Y % Revenue Revenue
Industrial
$374,735
43%
(3)% (3)% $384,973 $ 384,473
Automotive
134,617
15%
(2)%
3%
138,056
130,228
Consumer
186,101
21% 131% (10)%
80,592
206,656
Communications 174,138
20%
(1)% 23%
175,145
142,008
Total Revenue $869,591 100%
12%
1%
$778,766 $ 863,365
* The sum of the individual percentages does not equal the total due to rounding.
Analog Devices, Third Quarter, Fiscal 2016
Schedule E
Reconciliation from GAAP to Non-GAAP Revenue and Earnings Measures (In thousands, except per-share
amounts)
(Unaudited)
See "Non-GAAP Financial Information" in this press release for a description of the items excluded from our
non-GAAP
measures.
3Q 16
July 30,
2016
GAAP Gross Margin
Gross Margin Percentage
Acquisition-Related Expenses
Non-GAAP Gross Margin
Gross Margin Percentage
$
GAAP Operating Expenses
Percent of Revenue
Acquisition-Related Expenses
Acquisition-Related Transaction Costs
Restructuring-Related Expense
Non-GAAP Operating Expenses
Percent of Revenue
$
GAAP Operating Income/Margin
Percent of Revenue
Acquisition-Related Expenses
Acquisition-Related Transaction Costs
Restructuring-Related Expense
Non-GAAP Operating Income/Margin
Percent of Revenue
$
GAAP Diluted EPS
Acquisition-Related Expenses
Acquisition-Related Transaction Costs
Restructuring-Related Expense
Non-GAAP Diluted EPS (1)
$
$
$
$
$
Three Months Ended
2Q 16
April 30,
2016
572,290
65.8%
1,888
574,178
66.0%
$
303,583
34.9%
(17,582)
(8,310)
—
277,691
31.9%
$
268,707
30.9%
19,470
8,310
—
296,487
34.1%
$
0.74
0.06
0.02
—
0.82
$
$
$
$
$
3Q 15
Aug 1,
2015
510,903
$
65.6 %
1,476
512,379
$
65.8 %
569,037
65.9 %
1,307
570,344
66.1 %
303,524
$
39.0 %
(17,517)
—
(13,684)
272,323
$
35.0 %
303,768
35.2 %
(23,490)
(5,139)
—
275,139
31.9 %
207,379
$
26.6 %
18,993
—
13,684
240,056
$
30.8 %
265,269
30.7 %
24,797
5,139
—
295,205
34.2 %
0.55
0.06
—
0.04
0.64
$
$
0.68
0.08
0.02
—
0.77
(1) The sum of the individual per share amounts may not equal the total due to rounding
Schedule F
SUPPLEMENTAL CASH FLOW MEASURES (Unaudited)
(In thousands)
Three Months Ended
3Q 16
2Q 16
3Q 15
July 30,
April 30,
Aug 1,
2016
2016
2015
Net cash provided by operating activities $254,003
$320,203
$197,139
Capital expenditures
(37,528)
(25,517)
(35,164)
Free cash flow
$216,475
$294,686
$161,975
% of revenue
24.9%
37.8%
18.8%
View source version on businesswire.com: http://www.businesswire.com/news/home/20160817005191/en/
Analog Devices, Inc.
Mr. Ali Husain, 781-461-3282
781-461-3491 (fax)
Treasurer and Director of Investor Relations
[email protected]
Source: Analog Devices, Inc.
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